Thats no good.
A board director of Morgan Stanley and chief financial analyst of Asia Pacific warned that China may be headed for an economic downturn, fueled by another round of heated speculation in the Chinese economy. While a "soft-landing" would be preferred, one must wonder what the effects of a serious downturn would be on U.S.-based importers of Chinese goods. The most important result of a large recession on China would be that many of its banks are likely to fail without state intervention (which is pretty much gauranteed, since they are all state-owned). Those that survive would be forced to dramatically reduce lending. Increased interest rates and the difficulty in securing credit would make it very difficult for our Chinese suppliers to rapidly increase their supply to meet demand. Thus the marginal cost -- the cost of producing additional units-- would increase dramatically. No longer would the factories be able to easily add more machines, labor, and other production imports. The resulting increases in prices, along with any change in the currency, could have severely detrimental effects on import businesses around the world.
Nonetheless, many importers are small, nimble firms, capable of adapting to the times. I am convinced that those who have maintained solid relationships in China and other parts of the world will continue to prosper. Any Chinese recession, regardless of how severe, will eventually be overcome. Even the great depression was overcome. Once a country moves toward unequivocally toward capitalism as China has, there is no turning back the forces of progress.
posted by Ryan Petersen @ 10:20 PM
